mouse123

Nancy Hall, a candidate in the CFA program, is an analyst for a mutual fund. As part of her job she makes company visits to interview executives. On a recent trip she stayed with her sister instead of at a hotel. In her expenses Hall included a hotel charge of $100, which was less than the amount allowed by her employer. After receiving a check for her expenses, Hall disclosed to her supervisor that she had stayed with her sister instead of at a hotel. She also returned the $100 to her employer. According to CFA Institute Standards of Professional Conduct, which of the following statements best describes Hall's professional conduct?

A) Hall did not engage in professional misconduct because she eventually disclosed this information and returned the $100 to her employer.

B) Hall did not engage in professional misconduct because she did not meet all of the requirements to use the CFA designation.

C) Hall engaged in professional misconduct.

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Hall engaged in professional misconduct because her act involved dishonesty, fraud, and deceit.

mouse123

Hillary Jones, CFA, sometimes promises clients that she will allocate more shares from oversubscribed initial public offerings (IPOs) than she knows she will actually be able to deliver. Her employer has reprimanded her in the past for similar behavior. Which of the following statements is least accurate regarding Jones' behavior?

A) Her actions are a violation of the Standards only if prosecution results in a felony conviction.

B) Her actions are a violation of the standard concerning misrepresentation, because she promised something she knew the firm could not deliver.

C) Her actions are a violation of the standard concerning professional misconduct because she deceived her clients.

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Jones violated Standard I(C) Misrepresentation by promising clients she would allocate more shares than she could deliver. Her actions also violated Standard I(D) Misconduct pertaining to acts of dishonesty, fraud, or deceit which reflects adversely on a member's professional reputation, integrity, or competence. She also violated the Code of Ethics which states that members and candidates must act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, and prospective clients. The specific punishment for the actions is not relevant.

mouse123

Which of the following are recommended procedures of compliance according to Standard I(D), Misconduct?

A) All of these choices are correct.

B) Conduct background checks on potential employees to ensure that they are of good character.

C) Enroll employees in a continuing education program that would provide updates on required ethical behavior.

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According to Standard I(D) Misconduct - Procedures for Compliance: Members should encourage their employers to conduct background checks on potential employees to ensure that they are of good character and eligible to work in the investment industry.

mouse123

An investment advisor takes a trip for which his firm will pay the expenses. Upon his return he alters some of the numbers on restaurant receipts to inflate the expenses by $64. Is this a violation of Standard I(D)?

A) Yes, because it reflects adversely on the charterholder’s professional reputation.

B) No, if such a crime carries less than a one-year prison term.

C) Yes, because the amount involved is over $50.

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Professional conduct involving dishonesty, fraud, or deceit is a direct violation of Standard I(D), Misconduct.

mouse123

All of the following are violations of Standard I(D), Misconduct, EXCEPT:

A) conviction of a crime involving fraud.

B) any conduct that undermines confidence that the CFA charter represents a level of achievement based on merit and ethical conduct.

C) conviction of a misdemeanor involving civil disobedience in support of one’s personal beliefs.

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The Code and Standards do not focus on personal conduct as long as the conduct does not reflect poorly on one’s professional reputation, integrity, or competence.

mouse123

Trude Front, CFA, is a portfolio manager. While in the normal course of her duties, she happens to overhear material non-public information concerning the stock of VTT Bowser. She purchases several exchange traded funds which contain VTT Bowser, while shorting similar exchange traded funds which do not contain VTT Bowser. This is most likely:

A) not a violation of Standard II(A) "Material Non-Public Information."

B) only a violation of Standard II(A) "Material Non-Public Information" because Front is simultaneously shorting the funds which do not contain VTT Bowser.

C) a violation of Standard II(A) "Material Non-Public Information."

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This is a violation of Standard II(A) "Material Non-Public Information" irrespective of whether Front is simultaneously shorting the funds which do not contain VTT Bowser. Her trades are motivated by material non-public information.

mouse123

Lisa Pierce, CFA, has been researching Lander Manufacturing for the past three weeks. She likes the company’s history of fulfilling its contracts on time and within budget. She learns from the uncle of a maintenance worker at Lander’s headquarters that a group of well-dressed individuals arrived at headquarters in a lime green-colored limousine. Pierce knows from publicly available information that Gilbert Controls needs a large supply of specialized motors in its domestic division. She also knows that the executive officers of Gilbert usually travel in a lime green limousine. Pierce concludes that it is very likely that Gilbert will offer a large contract to Lander. Based on this development and her prior research Pierce would like to acquire Lander Manufacturing shares for her client accounts.
Pierce should:

A) not acquire the shares because she possesses material nonpublic information.

B) proceed to acquire the shares.

C) not acquire the shares until after she has contacted Lander's management and encouraged them to publicly announce information about the Gilbert Controls contract. She should also wait until Lander has made the announcement and the public has had time to react to it and then make the acquisition.

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Standard II(A) prohibits members from taking investment action if they possess material nonpublic information. Pierce combined information that was not misappropriated, with her knowledge of the company, to reach a conclusion under the mosaic theory, which is permissible under the standards. She can proceed to buy the shares.

hinsafdar

Jason Reynolds meets Jack Parker, CFA, at a social engagement and asks for some "hot stock tips." Parker declines, but sets up an appointment to review Reynolds’ risk and return objectives and financial constraints. At the conclusion of their appointment, Parker recommends three securities he has thoroughly researched: ACK, D-Wing, and Ophus-Littbinger. Parker is least likely:

A) in violation of Standard III(A) "Loyalty, Prudence, and Care" for failing to consider the three securities in the context of the whole portfolio.

B) not in violation.

C) in violation of Standard III(A) "Loyalty, Prudence, and Care" for failing to make a reasonable inquiry into the client’s investment experience.

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Standard III(A) "Loyalty, Prudence, and Care" requires Parker to make a reasonable inquiry into the client’s investment experience, risk and return objectives, and financial constraints. Investment decisions must be made based on a total portfolio approach, rather than the quality of an individual investment in isolation.

hinsafdar

Heidi Krueger, CFA, an investment advisor, applies soft dollars generated from client accounts to purchase a report on the economic impact of world events, and to purchase a new conference table for the office she uses to meet with clients and prospects. Do these purchases violate Standard III(A) Loyalty, Prudence, and Care?

A) Both of these purchases violate the Standard.

B) Neither of these purchases violates the Standard.

C) Only one of these purchases violates the Standard.

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Using soft dollars for the purchase of office furniture does not benefit clients and is a violation. Purchasing research reports with soft dollars is not a violation, but the advisor should ensure that research purchased with client brokerage will benefit her clients.

hinsafdar

According to Standard III(A) Loyalty, Prudence and Care, brokerage is an asset of the:

A) managing firm.

B) brokerage firm conducting the trades.

C) client.

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Brokerage is an asset of the client.